Egypt: When the Gulf countries buy up the crown jewels

By Hossam Rabie, in Cairo
Posted on Monday, 1 August 2022 16:12, updated on Monday, 22 August 2022 10:22

Traders at the Cairo stock exchange in September 2019. © REUTERS/Mohamed Abd El Ghany

In April, Egypt announced the sale of nearly $40bn in assets over four years to try to revive an economy in crisis. Several Gulf countries have jumped at the opportunity and have already spent some $20bn on the acquisition of public assets for sale.

This is an opportunity for these investors to grab the most profitable public companies and assets. But within the government, the operation is causing great concern.

On 3 July, the Egyptian parliament, all of whose members support President Abdel Fattah al-Sisi, approved an agreement signed in late March between the Egyptian and Saudi governments. This is supposed to facilitate the Saudi Public Investment Fund’s (PIF) purchase of Egyptian assets. This new agreement comes after trade between the two countries jumped by 62.1% in 2021. It reached $8.7bn in 2021 compared to $5.4bn in 2020, according to the Egyptian Statistics Agency.

The green light from parliament comes a few days after the Abu Dhabi Ports Group announced the acquisition of 70% of the Egyptian holding company International Associated Cargo Carrier – which owns the shipping companies Transmar and Transcargo – for Dh514m ($140 million).

Ports, hotels, real estate…

On 15 May, Egypt’s prime minister Mostafa Madbouli unveiled a plan to integrate the country’s seven largest ports into a holding company to list them on the stock exchange. Madbouli indicated that a similar plan will soon be adopted for seven state-owned hotels.

On 12 April, the Abu Dhabi Sovereign Wealth Fund bought the Egyptian state’s shares in five companies for $1.8bn, while at the end of March, the Abu Dhabi Ports Group signed a preliminary agreement to participate in the commissioning of the Port of Ain Sukhna on the Red Sea.

Since the outbreak of war in Ukraine, Egypt has been going through a difficult economic period. Foreign exchange reserves are dwindling, and the country is looking for ways to pay off its foreign debt. According to data published by the World Bank in mid-July, Egypt would have to repay $33bn in debt (including interest) in the period between March 2022 and March 2023, equivalent to the country’s current foreign-exchange reserves.

To find new money, President Sisi announced his intention to sell public assets over four years, for a hoped-for amount of $40bn. While the government justifies this decision by its desire to encourage investment and the private sector, for observers, the operation is mainly aimed at filling foreign-exchange coffers and allowing Cairo to meet its obligations.

“President Sisi is personally leading the efforts to attract investments from the Gulf to Egypt in order to fill the shortage of foreign currency, after the flight of foreign investors from the Egyptian market,” explains an official who wishes to remain anonymous. He adds that the sale of assets is particularly targeted at Gulf investors, who are able to inject dollars into the Egyptian market.

Behind the scenes, transactions are said to be underway with Saudi, Emirati and Qatari investors and funds for the sale of airlines, transport and real estate companies, as well as ports and hotels.

Public and private targeted

However, Egypt is receiving much lower prices than it had hoped for. On 8 July, the board of directors of the Madinet Nasr for Housing & Development (MNHD) real estate company, founded in 1959, rejected an offer from the United Arab Emirates-based real estate company Al-Dar.

The directors justified this refusal by the fact that “the value of the offer is not in line with the real value of the company and its assets”, according to a letter sent by MNHD to Al-Dar. “The government notes that Gulf investors are trying to take advantage of the crisis and Egypt’s need to obtain foreign currency to offer very low prices for the assets they want to buy,” says the source.

In addition to the public sector, the Egyptian private sector, which is also suffering from a dollar shortage, has also become a target for Gulf investors. On 14 July, the Agthia Group, owned by Abu Dhabi Holding, acquired a 60% stake in the Egyptian coffee brand Auf for about $155m.

An Egyptian-Emirati-Saudi consortium is now trying to get its hands on 90% of the shares of the Domty company, which accounts for about 40% of the cheese market in Egypt.

“The strategy of selling public assets to Gulf countries is very risky and shows that the government does not have a long-term strategy,” said Elhami el-Merghani, a researcher and secretary general of the Socialist People’s Coalition Party. “The government is selling profitable companies to pay off this year’s debt payments, without thinking about how it will pay off the remaining debts, which are estimated to be worth $158bn…”

For el-Merghani, these Gulf investments do not serve the Egyptian economy. “Gulf investors do not create productive assets but buy assets that make money,” he said. He also warned of the social and economic consequences of this policy.

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